806 F.3d 835
5th Cir.2015Background
- MM Steel was founded in 2011 by two former distributor salesmen (Schultz and Hume); it obtained a supply agreement and credit from JSW but soon could not source steel and shut in 2013.
- Competing distributors Chapel and American Alloy (AmAlloy) reacted to MM’s entry by threatening manufacturers that sold to MM, and they met and agreed to try to shut MM out of supply.
- JSW initially contracted to supply MM and extended credit, but after meetings with Chapel and AmAlloy and receiving threats, JSW abruptly stopped dealing with MM and sought more business with Chapel.
- Nucor, a longtime supplier to Chapel, declined to quote MM on multiple occasions; Nucor says it followed a longstanding incumbency practice of protecting established customers.
- MM sued distributors and manufacturers under §1 of the Sherman Act for a horizontal group boycott; a jury found distributors, JSW, and Nucor liable and awarded $52 million (trebled by the court). Distributors settled on appeal; this opinion affirms as to JSW and reverses as to Nucor.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did JSW knowingly join a horizontal group boycott to deny MM supply? | JSW received explicit threats from AmAlloy and Chapel, then ceased dealing with MM shortly after; that timing and JSW’s statements show it knowingly joined the distributors’ conspiracy. | JSW acted independently — its decision followed MM’s request to postpone shipments and Chapel’s lawsuit; refusals were lawful unilateral business decisions. | Affirmed: substantial circumstantial evidence showed JSW joined the horizontal conspiracy; per se liability appropriate if a manufacturer joins such a boycott. |
| Did Nucor knowingly join the distributors’ horizontal conspiracy? | Nucor communicated support for Chapel and refused to quote MM on several occasions, and later comments indicate pressure among mills not to support MM. | Nucor’s refusals followed its incumbency practice and loyalty to longstanding customers; initial refusals preceded any distributor horizontal agreement and are consistent with independent conduct. | Reversed as to Nucor: insufficient substantial evidence to exclude independent-conduct explanations; cannot conclude Nucor knowingly joined the horizontal conspiracy. |
| Is the manufacturers’ participation in a distributor-organized boycott subject to per se §1 liability or the rule of reason? | MM: group boycotts that use vertical participants to effectuate a horizontal conspiracy are classic per se violations. | JSW argued Leegin and post-Leegin authority narrowed per se treatment of vertical restraints; urges rule of reason or additional Tunica-factor analysis. | Per se applies where manufacturer knowingly joins a horizontal conspiracy to foreclose a rival; district court did not err in instructing per se liability and no remand for Tunica-factor jury consideration was required. |
| Were MM’s damages expert and yardstick methodology admissible? | MM: used Chapel’s Houston office as a reasonable yardstick comparator and projected lost profits via accepted yardstick method. | JSW: comparator invalid, wrong benchmark years, unrealistic profit margins, and failed to account for MM’s six‑month customer restriction. | Affirmed: district court did not abuse discretion under Daubert; yardstick model and expert testimony were admissible and challenges went to weight, not admissibility. |
Key Cases Cited
- Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752 (establishes that a manufacturer’s refusal to deal is lawful absent evidence it joined a conspiracy; plaintiff must exclude independent conduct)
- Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (held per se rule inapplicable to vertical price‑setting; discussed in relation to vertical vs. horizontal restraints)
- NYNEX Corp. v. Discon, Inc., 525 U.S. 128 (discusses per se rule and its application to certain group boycotts)
- Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284 (per se treatment for group boycotts that coerce suppliers/customers to deny competitors essential relationships)
- Klor’s, Inc. v. Broadway‑Hale Stores, Inc., 359 U.S. 207 (classic per se group‑boycott precedent applying per se liability to participants)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (parallel conduct consistent with independent business judgment does not alone support an inference of conspiracy)
- Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (standard for admissibility of expert testimony)
- Lehrman v. Gulf Oil Corp., 500 F.2d 659 (explains yardstick test for lost‑profits damages)
- Tunica Web Advertising v. Tunica Casino Operators Ass’n, Inc., 496 F.3d 403 (discusses factors for applying per se treatment to certain boycotts; addressed but not required here)